Investing in India’s Specialty Steel Industry: The PLI Program

The Indian government has received 75 applications for its production-linked incentive (PLI) scheme for specialty steel – all domestic players, including steel majors Tata Steel, JSW Steel, JSPL, AMNS India, and SAIL. The government intends to shortlist the beneficiaries over the next 25-40 days. The INR 63.22 billion PLI scheme aims to expand India’s local production capacity of specialty steel products, lower import dependency, and create an export-oriented production base. The scheme hopes to benefit both major (integrated) steel players as well as downstream manufacturing MSME entities. Applications for the scheme were open till September 15, 2022.

Keeping in line with India’s “Make in India” policy to boost domestic manufacturing and cut down on import bills, the Production-Linked Incentive (PLI) scheme for manufacturing high grade specialty steel in India was officially notified on July 29, 2021. Approved with the budgetary outlay of INR 63.22 billion (US$848.93 million), the scheme will be implemented for a five-year period. (Originally, the release of the incentives under the scheme was to start from 2023-24, but this was changed to 2024-25, given the fact that the application window has been extended multiple times.)

Specialty steel is a downstream product in the steel manufacturing process and through upgrades to its industrial ecosystem, India wants to join advanced steel making countries like Japan and South Korea. 

In 2020-21, India imported 6.7 MT of steel, out of which 4 MT was specialty steel, worth INR 300 billion (US$4.04 billion). Through the PLI scheme, India wants to plug this gap in market demand by sourcing domestically and creating products for export. The PLI scheme is expected to draw investments worth approximately INR 400 billion (US$5.37 billion) and expand capacity of specialty steel by 25 million ton (MT), from 18 MT in 2020-21 to 42 MT in 2026-27. 

Apart from gaining technological know-how and boosting exports, the government also envisages the scheme will generate employment for over half a million people.

In related developments, the government recently approved an MoU between India and the Russian Federation on cooperation regarding coking coal that is used to make steel.

According to Union Minister of Steel, Ram Chandra Prasad Singh, steel is a deregulated sector in India. It is dominated by six major players – four in the private sector and two in the public sector. The private sector contributes about 86 percent of India’s steel production and the public sector contributes about 14 percent.

What is specialty steel and which steel products will benefit from the PLI scheme?

Specialty steel is a value-added steel, made by processing normal finished steel through coating, plating and heat treatment. Apart from its applications in the automobile sector and specialized capital goods sector, it also holds high usage value in sectors like defense, space, and power.

The five categories of specialty steel that come under the PLI scheme are:

Coated/plated steel products

• Galvannealed/galvanized iron-auto grade
• Tin mill products
• Al-Zn coated
• Color coated
• Coated/plated products of metallic / non-metallic alloys

High strength/wear resistant steel

• Hot rolled coil, sheets, and plates of American Petroleum Institute (API) Gr 52<=X<=70
• HR coil, sheets, and plates API Gr>X-70
• High tensile sheets, coil, and plates (YS>=450Mpa)
• High tensile auto Gr steel, including Advanced High Strength Steel (AHSS) (Cold Rolled Closed Annealed)
• Boiler grade / pressure vessels grade steel
• QT / abrasion resistance and wear resistant steel

Specialty rails

• Asymmetric rails
• Head hardened rails

Alloy steel products and steel wires

• Tool and die steel
• Bearing steel
• Precipitation hardened stainless steel
• Automotive power train component grades of steel
• Tire bread wire
• C’ class zinc coated wire
• Tire cord (brass coated)
• Oil tempered spring steel wire

Electrical steel

• Cold Rolled Grain-Oriented (CRGO) steel
• Cold Rolled Non-Grain Oriented (CRNO)

It is expected that by 2027-28, India will start manufacturing products like API grade pipes, head hardened rails, electrical steel (needed in transformers and electrical appliances) etc. out of the above categories of products.

Currently, these products are manufactured in very limited quantities or not manufactured at all. Specialty steel makes up 4 million tons of India’s 6.7 million ton steel imports; about eight percent of India’s domestic steel capacity is dedicated to it.

Why has the specialty steel segment been targeted by the PLI scheme?

Specialty steel has been chosen as a target segment by the PLI scheme due to its under production in India, despite its high demand among stakeholders and strategic applications. In 2020-21, India produced a mere 18 MT of specialty steel out of the total 102 MT steel production. Resultant imports of around 4 MT of specialty steel in the same period have overburdened the foreign exchange reserves to the tune of INR 300 billion (US$4.03 billion).

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By launching the PLI scheme in this sector, the government intends on becoming self-sufficient in specialty steel production and move up higher on the steel value chain to come at par with advanced steel making countries like South Korea and Japan. The government also intends on expanding the exports of specialty steel to 5.5 MT by 2026-27, and consequently refueling India’s forex reserves by approximately INR 330 billion (US$4.43 billion).

Eligibility for PLI scheme

A company registered in India under the Companies Act 2013, that is engaged in manufacturing of the identified specialty steel grades can apply under the PLI scheme through an online portal. However, the approval is subject to the condition that end-to-end manufacturing must take place within the country. It means that the input material being melted and poured within the country using iron ore/scrap/sponge iron/pellets etc. shall be eligible to apply for incentive under the scheme.

The eligibility criteria for a company under the PLI scheme include a minimum investment limit as well as threshold minimum incremental production rate, which is a rate for a given product category and will be subsequently notified in the guidelines. Applicants are required to commit achieving either equal to or above threshold incremental production rate to be eligible for participation in PLI scheme.

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A company may apply for multiple product categories as selected under the scheme. However, it must submit a separate application for each product category along with non-refundable application fee. The PLI is fund-limited, however, with a cap of INR 2 billion (US$26.86 million) on an eligible company across all product categories.

Major integrated steel players in the five chosen categories of specialty steel, including alloy steel manufacturers and secondary steel manufacturers in alloy steel products and steel wires, are expected to be the major beneficiaries of the scheme.

This scheme is also expected to provide a level playing field to downstream steel manufacturers, including micro, small and medium enterprises (MSMEs), along with integrated steel manufacturers.

75 applications received after Sep. 15 window closes

The government received 75 applications from domestic companies, including from major steel players Tata Steel, JSW Steel, JSPL, AMNS India, and SAIL. The final list of beneficiaries should be released in the next 35-40 days as per officials speaking to the media.

What are the incentives under the PLI scheme?

Under the PLI scheme, incentives will be computed based on the incremental production, which is multiplied by the incentive slab rate as applicable and the weighted average sales price of the product.

There are three slabs of PLI incentives under this scheme, the lowest being 4 percent and highest being 12 percent which has been provided for electrical steel.

How are the incentives calculated?

The incentive shall be calculated as per the formula given below:

Incentive = (A/B) x (B or C or D, whichever is lowest) x (PLI rate as applicable)/100

A = Incremental sales in current year#

B = Weighted Average sales price of the applicant in current year

C = Weighted Average sales price in base year 

D = Weighted Average sales price in current year $

#current year – means the year for which the PLI has been claimed

$ – to be worked out by the JPC (Joint Plant Committee under Ministry of Steel) and notified by the PMA (Project Management Agency) every year.

As per the Gazette notification issued December 24, 2021, the PLI Slabs are as below. Incentive under scheme shall be effective from April 1, 2023, payable in FY2024-25 or as may be notified for the product category/sub-category in the Scheme guidelines.

Also, this notification replaces Appendix B (Illustrative Projected Incremental Production) of the earlier gazette notification dated July 29, 2021.

PLI slabs

Financial outlay by fiscal year

Archived

Where to apply for the PLI scheme for Specialty Steel?

Eligible entities for the PLI Scheme for Specialty Steel were to apply here: https://plimos.meconlimited.co.in/ords/f?p=138:1:2924209645360:::::  (Ministry of Steel, Government of India).

What is the application window for the PLI Scheme for Specialty Steel?

The final application deadline was September 15, 2022. The PLI guidelines were released October 20, 2021. (Previously, the window for applications was extended from December 29, 2021 to March 29, 2022 and then till April 30 and then May 31.)

In December 2021, the government deferred the implementation of the scheme. Instead of 2022-23, the five-year scheme will commence from 2023-24. The release of the incentives under the scheme will start from 2024-25, instead of 2023-24 proposed in the original scheme guidelines issued in October 2021. 

The extensions hope to accommodate changes in the scheme as sought by the industry. 

Government update in May:

The Indian government had received just 10 applications for the PLI Scheme for Specialty Steel, PTI reported on May 22. As per a senior government official speaking to the media, the government is modifying the scheme based on industry concerns. “In the modified scheme, the government is working on a uniform incentive on the production of specialty steel. More grades, especially those used in the defense sector, will be added to the scheme. For secondary players, cap on minimum investment and setting up minimum capacity will also be removed…”

This article was originally published July 27, 2021. It was last updated September 19, 2022.

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